Vertically integrated, centrally managed business models are rapidly giving way to decentralized business models leveraging outsourcing. Original equipment manufacturers (OEMs) are responding to cost and competitive issues by divesting operations and outsourcing key functions, such as manufacturing, distribution, logistics, service, and inventory management. The rationale behind outsourcing is simple: focus on core competencies, and for everything else, transfer responsibility to various types of service providers (or “partners”) who can employ economies of scale and provide geographic coverage for product distribution, service, and manufacturing.
In addition to its common sense appeal, outsourcing has delivered significant financial value to both the OEMs and the growing clusters of companies that support them. Outsourcing, however, along with globalization and system/application proliferation, has caused a dramatic increase in complexity across supply chains due to the lack of information systems to coordinate operations. Consequently, many companies have instituted enterprise and collaborative planning across supply chains.
Recent initiatives in outsourcing and collaborative planning have exposed a critical flaw in today's extended supply chains: they are not configured for the efficient execution that was once possible when companies were vertically integrated. Managing a supply chain has become an extremely complex task that previously developed systems with an enterprise-focused approach cannot adequately support. These enterprise systems were designed to support one centralized, static, standardized business process, as opposed to business processes governed by individual business agreements. Furthermore, collaborative planning solutions do not coordinate execution across supply chains. Instead, they focus on macro-level parameters, long planning horizons, and data that is frozen days or even weeks before and after events actually occur. The primary challenge remains unmet: effectively coordinating execution of actions and events across a supply chain even as service and lead-time requirements become more stringent and partners come and go.